IMAX Corporation Reports Third-Quarter 2016 Financial Results

IMAX increases installation guidance to a range of 155 to 160 theatres, up from prior guidance of 155 theatres

Signed a record 162 theatre systems in the third quarter, bringing first nine month signings to 293, eclipsing the 138 system signings for all of 2015

Installed 48 new IMAX® theatres—a third-quarter Company record

Domestic Per Screen Average of $174,200 in third quarter, up 8% vs. the prior year period

Announced pilot virtual reality facilities in Los Angeles and Manchester, England, both to open late 2016

IMAX Corporation (NYSE: IMAX) today reported third-quarter 2016 revenues of $86.6 million and net income attributable to common shareholders of $2.5 million, or $0.04 per share. Adjusted net income attributable to common shareholders was $7.9 million, or $0.12 per diluted share. EBITDA as calculated in accordance with the Company's credit facility was $24.5 million. For reconciliations of adjusted net income to reported net income, adjusted net income per diluted share to reported net income per diluted share, and for the definition and reconciliation of EBITDA as calculated in accordance with the Company's credit facility, please see the end of this press release.

"The third quarter was strategic on several fronts that we believe will support the continued long-term growth and health of our business – including record signings and installation activity, the repurchase of 500,000 common shares under our buy-back program and reaching key milestones in the coming launch of our pilot location-based virtual reality offering," said IMAX CEO Richard L. Gelfond. "In just the first nine months of the year, we signed a record 293 theatre agreements, the majority of which came from existing partners looking to expand their IMAX footprint. As importantly, our accelerated install pace continued into the third quarter as well, with a record 48 new theatre installs–signaling continued demand from exhibitors to open their IMAX® theatres ahead of the highly anticipated upcoming film slate."

Network Update:During the quarter, the Company installed 50 theatres, of which 48 were for new theatre locations and 2 were upgrades. The Company also signed contracts for 162 theatres in the third quarter of 2016. The total IMAX theatre network consisted of 1,145 systems as of Sept. 30, 2016, of which 1,037 were in commercial multiplexes. There were 547 theatres in backlog as of Sept. 30, 2016, up 23.8% from the 442 in backlog as of June 30, 2016. For a breakdown of theatre system signings, installations, network and backlog by type, please see the end of this press release.

Box Office Update:Gross box office from IMAX DMR® titles was $186.3 million in the third quarter of 2016, compared with $189.8 million in the prior-year period. The average global DMR box office per-screen average in the third quarter of 2016 was $184,700.

"From a box office perspective, we were encouraged by a number of key markets - including the domestic market - which saw IMAX per screen averages rise 8% in the third quarter. While global box office overall was flat versus the third quarter of last year, box office is cyclical and we can expect periods that are stronger than others – such as the first five months of 2016. We anticipate box office will pick up again in the fourth quarter with titles such as Marvel's Doctor Strange, which includes more than an hour of footage specially formatted exclusively for IMAX, the Harry Potter spin-off Fantastic Beasts and Where to Find Them, and of course Rogue One: A Star Wars Story. With the anticipated strength of the tentpole-heavy film slate over the next 24 months coupled with the heightened demand from filmmakers to differentiate their movies using IMAX® cameras and the ideal content spacing, we believe we are well-positioned to take advantage of the years ahead."

Third-Quarter Segment Results

Revenue from sales and sales-type leases was $21.8 million in the third quarter of 2016, compared with $26.6 million in the third quarter of 2015. The Company installed 15 full theatre systems under sales and sales-type lease arrangements in the most recent quarter, compared with the 12 full sales-type theatres installed in the third quarter of 2015. The Company also recognized 2 upgrades under sales and sales-type lease arrangements in the most recent quarter, compared to 8 in the same period last year.

Revenue from joint revenue-sharing arrangements was $19.7 million in the quarter, compared with $19.8 million in the prior-year period. During the quarter, the Company installed 33 new theatres under joint revenue-sharing arrangements, compared with 22 in the third quarter of 2015. The Company had 592 theatres operating under joint revenue-sharing arrangements as of Sept. 30, 2016, as compared to 498 joint revenue-sharing theatres one year prior.

Production and DMR revenues were $21.5 million in the third quarter of 2016, compared with $20.9 million in the third quarter of 2015. As mentioned above, gross box office from DMR titles was $186.3 million in the third quarter of 2016, compared with $189.8 million in the prior-year period. The global DMR per screen average in the third quarter of 2016 was $184,700, compared with $220,500 in same period last year.

Gross margin across all segments in the third quarter of 2016 was 51.9%, compared to 49.8% in the third quarter of 2015.

Operating expenses (which include SG&A and R&D, and excludes stock-based compensation) were $27.5 million in the quarter, compared with $23.4 million in the third quarter of 2015.

"While we remain focused on our core business, in the third quarter we expanded our efforts to deliver differentiated entertainment experiences with the coming launch of our premium location-based VR offering, IMAX VR™," Gelfond said. "I am pleased to report that we have already made significant progress on this initiative and have received strong interest for centre partnerships, content deals and many other opportunities that we hope to begin announcing over the coming months. While we are still in the early test phase of this effort, we are optimistic about VR and the potential sizeable opportunity that it presents our business."

Share Buybacks

The Company repurchased 500,000 shares in the third quarter of 2016. The Company purchased the shares at an average price of $29.32, for a total value of $14.7 million. The Company did not repurchase any shares in connection with the administration of the Company's long-term incentive plan in the third quarter of 2016.

Supplemental Earnings MaterialsFor more information about our results, please refer to the earnings slides posted on the IMAX Investor Relations website located at www.imax.com/content/investor-relations.

Investor Relations Website and Social Media

Beginning the week of October 24, 2016, and on a weekly basis thereafter, the Company intends to post quarter-to-date box office results on the IMAX Investor Relations website located at www.imax.com/content/investor-relations. The Company expects to provide such updates on Friday of each week, although the Company may change this timing without notice. Results will be displayed with a one week lag. In addition, the Company has created a new Twitter account: @IMAX_IR. The Company intends to use Twitter to disclose the foregoing box office information, as well as other information that may be of interest to the Company's investor community.

The information posted on the Company's website and/or via its Twitter account may be deemed material to investors. Accordingly, investors, media and others interested in the Company should monitor the Company's website and its Twitter account in addition to the Company's press releases, SEC filings and public conference calls and webcasts.

Conference CallThe Company will host a conference call today at 8:30 AM ET to discuss its third-quarter 2016 financial results. To access the call via telephone, interested parties in the US and Canada should dial (800) 505-9568 approximately 5 to 10 minutes before the call begins. Other international callers should dial (416) 204-9271. The conference ID for the call is 6905161. A replay of the call will be available via webcast on the IMAX Investor Relations website located at www.imax.com/content/investor-relations or via telephone by dialing (888) 203-1112 (US and Canada), or (647) 436-0148 (international). The Conference ID for the telephone replay is 6905161.

About IMAX Corporation IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you've never imagined. Top filmmakers and studios are utilizing IMAX theatres to connect with audiences in extraordinary ways, and, as such, IMAX's network is among the most important and successful theatrical distribution platforms for major event films around the globe.

IMAX is headquartered in New York, Toronto and Los Angeles, with offices in London, Tokyo, Shanghai and Beijing. As of Sep. 30, 2016, there were 1,145 IMAX theatres (1,037 commercial multiplexes, 16 commercial destinations and 92 institutions) in 74 countries. On Oct. 8, 2015, shares of IMAX China, a subsidiary of IMAX Corp., began trading on the Hong Kong Stock Exchange under the stock code "HK.1970."

This press release contains forward looking statements that are based on IMAX management's assumptions and existing information and involve certain risks and uncertainties which could cause actual results to differ materially from future results expressed or implied by such forward looking statements. Important factors that could affect these statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of business, operations and technology, plans and references to the future success of IMAX Corporation together with its consolidated subsidiaries (the "Company") and expectations regarding the Company's future operating, financial and technological results. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, the signing of theater system agreements; conditions, changes and developments in the commercial exhibition industry; the performance of IMAX DMR films; the potential impact of increased competition in the markets within which the Company operates; competitive actions by other companies; the failure to respond to change and advancements in digital technology; risks associated with investments and operations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of local governments and laws and policies of the United States and Canada; risks related to the Company's growth and operations in China; the Company's largest customer accounting for a significant portion of the Company's revenue and backlog; risks related to new business initiatives; conditions in the in-home and out-of-home entertainment industries; the opportunities (or lack thereof) that may be presented to and pursued by the Company; risks related to cyber-security; risks related to the Company's inability to protect its intellectual property; risks related to the Company's implementation of a new enterprise resource planning system; general economic, market or business conditions; the failure to convert theater system backlog into revenue; changes in laws or regulations; and other factors, many of which are beyond the control of the Company. These factors, other risks and uncertainties and financial details are discussed in IMAX's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

(1) Includes two installations of an upgrade to a laser-based digital system under sales and sales-type lease arrangements (2015 – nine laser-based digital systems, seven under sales and sales-type lease arrangements, one under a short-term operating lease arrangement and one under a joint revenue sharing arrangement).

(2) Includes 20 laser-based digital theater system configurations (2015 – 69), including upgrades. The Company continues to develop and roll out its laser-based digital projection system.

(3) Includes five upgrades to a laser-based digital theater system, in existing IMAX theater locations.

(4) Includes 20 upgrades to a digital theater system, in existing IMAX theater locations (two xenon configurations and 18 laser configurations, of which four are under joint revenue sharing arrangements).

Additional Information (continued)

In addition to the 42 IMAX DMR films released to the IMAX theater network during the first nine months ended September 30, 2016, 5 additional IMAX DMR films have been announced so far to be released in the remaining three months of 2016:

The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its short and long-term film slate, and anticipates that the number of IMAX DMR films to be released to the IMAX network in 2017 will be similar to the 47 IMAX DMR films slated for release in 2016.

IMAX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)

Three Months

Nine Months

Ended September 30,

Ended September 30,

2016

2015

2016

2015

Revenues

Equipment and product sales

$

30,835

$

33,083

$

81,064

$

72,824

Services

37,195

33,024

122,853

115,698

Rentals

16,007

16,665

58,538

59,006

Finance income

2,288

2,329

6,991

6,803

Other

225

-

975

141

86,550

85,101

270,421

254,472

Costs and expenses applicable to revenues

Equipment and product sales

15,690

21,949

49,075

43,010

Services

20,393

15,899

58,517

50,201

Rentals

5,504

4,864

15,367

13,856

Other

64

-

110

-

41,651

42,712

123,069

107,067

Gross margin

44,899

42,389

147,352

147,405

Selling, general and administrative expenses

30,686

24,973

92,706

82,348

(including share-based compensation expense of $7.7 million and $22.5 millionfor the three and nine months ended September 30, 2016, respectively (2015 -expense of $4.3 million and $14.9 million, respectively))

Research and development

4,460

2,722

11,603

9,611

Amortization of intangibles

531

429

1,537

1,302

Receivable provisions, net of recoveries

275

361

631

709

Asset impairments

1,223

245

1,223

245

Impairment of investments

-

-

194

350

Income from operations

7,724

13,659

39,458

52,840

Interest income

370

222

1,217

727

Interest expense

(469)

(463)

(1,325)

(1,170)

Income from operations before income taxes

7,625

13,418

39,350

52,397

Provision for income taxes

(2,551)

(2,477)

(9,635)

(12,408)

Loss from equity-accounted investments, net of tax

(690)

(427)

(2,471)

(1,610)

Net income

4,384

10,514

27,244

38,379

Less: net income attributable to non-controlling interests

(1,859)

(1,904)

(7,401)

(5,028)

Net income attributable to common shareholders

$

2,525

$

8,610

$

19,843

$

33,351

Net income per share attributable to common shareholders - basic & diluted:

Net income per share – basic

$

0.04

$

0.12

$

0.29

$

0.47

Net income per share – diluted

$

0.04

$

0.12

$

0.29

$

0.46

Weighted average number of shares outstanding (000's):

Basic

67,090

69,699

68,053

69,582

Fully Diluted

67,746

70,860

68,721

71,102

Additional Disclosure:

Depreciation and amortization(1)

$

12,115

$

10,467

$

34,179

$

31,191

(1) Includes $0.1 million and $0.4 million of amortization of deferred financing costs charged to interest expense for the three and nine months ended September 30, 2016, respectively (2015 - $0.3 million and $0.7 million, respectively).

Share issuance costs from the issuance of subsidiary shares to non-controlling

interests - private offering

-

(2,000)

Net cash (used in) provided by financing activities

(106,285)

33,594

Effects of exchange rate changes on cash

124

275

(Decrease) increase in cash and cash equivalents during period

(99,345)

10,858

Cash and cash equivalents, beginning of period

317,449

106,503

Cash and cash equivalents, end of period

$

218,104

$

117,361

IMAX CORPORATIONSELECTED FINANCIAL DATAIn accordance with United States Generally Accepted Accounting Principles(in thousands of U.S. dollars)

The Company has seven reportable segments identified by category of product sold or service provided: IMAX systems; theater system maintenance; joint revenue sharing arrangements; film production and IMAX DMR; film distribution; film post-production; and other. The IMAX systems segment includes the design, manufacture, sale or lease of IMAX theater projection system equipment. The theater system maintenance segment includes the maintenance of IMAX theater projection system equipment in the IMAX theater network. The joint revenue sharing arrangements segment includes the provision of IMAX theater projection system equipment to an exhibitor in exchange for a share of the box-office and concession revenues. The film production and IMAX DMR segment includes the production of films and the performance of film re-mastering services. The film distribution segment includes the distribution of films for which the Company has distribution rights. The film post-production segment provides film post-production and film print services. The other segment includes certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items.

Three Months

Nine Months

Ended September 30,

Ended September 30,

2016

2015

2016

2015

Revenue

IMAX Theater Systems

IMAX Systems

Sales and sales-type leases

$

21,804

$

26,635

$

58,522

$

53,924

Ongoing rent, fees, and finance income

3,883

3,518

11,986

10,708

Other

4,904

3,221

14,394

11,320

30,591

33,374

84,902

75,952

Theater System Maintenance

10,293

9,337

30,031

27,345

Joint Revenue Sharing Arrangements

19,698

19,797

66,940

67,259

Film

Production and IMAX DMR

21,549

20,865

78,767

75,144

Film distribution and post-production

4,419

1,728

9,781

8,772

25,968

22,593

88,548

83,916

Total

$

86,550

$

85,101

$

270,421

$

254,472

Gross margins

IMAX Theater Systems

IMAX systems(1)

Sales and sales-type leases

$

12,936

$

9,775

$

26,795

$

24,720

Ongoing rent, fees, and finance income

3,807

3,334

11,457

10,111

Other

69

(267)

(251)

(421)

16,812

12,842

38,001

34,410

Theater System Maintenance

3,398

3,521

10,207

9,891

Joint Revenue Sharing Arrangements(1)

10,980

12,130

44,716

46,816

Film

Production and IMAX DMR(1)

12,448

13,929

52,398

55,642

Film distribution and post-production(1)

1,261

(33)

2,030

646

13,709

13,896

54,428

56,288

Total

$

44,899

$

42,389

$

147,352

$

147,405

__________________

(1)

IMAX systems include marketing and commission costs of $0.8 million and $1.9 million for the three and nine months ended September 30, 2016, respectively (2015 - $0.9 million and $1.8 million, respectively). Joint revenue sharing arrangements segment margins include advertising, marketing and commission costs of $1.4 million and $2.9 million for the three and nine months ended September 30, 2016, respectively (2015 - $1.3 million and $2.7 million, respectively). Production and DMR segment margins include marketing costs of $4.2 million and $11.7 million for the three and nine months ended September 30, 2016, respectively (2015 - $3.4 million and $8.3 million, respectively). Distribution segment margins include marketing expense of $0.6 million and $2.1 million for the three and nine months ended September 30, 2016, respectively (2015 - cost recovery of less than $0.1 million and cost recovery of $0.1 million, respectively).

IMAX CORPORATIONOTHER INFORMATION(in thousands of U.S. dollars)

Non-GAAP Financial Measures:

In this release, the Company presents adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share as supplemental measures of performance of the Company, which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because it believes that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fully understand the impact of its stock-based compensation (net of any related tax impact) on net income. In addition, the Company presents adjusted revenue attributable to common shareholders, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share because it believes that they are important supplemental measures of its comparable financial results and could potentially distort the analysis of trends in business performance and it wants to ensure that its investors fully understand the impact of net income attributable to non-controlling interests and its stock-based compensation (net of any related tax impact) in determining net income attributable to common shareholders. Management uses these measures to review operating performance on a comparable basis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted net income, adjusted net income per diluted share, adjusted revenue attributable to common shareholders, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share should be considered in addition to, and not as a substitute for, revenue, net income and net income attributable to common shareholders and other measures of financial performance reported in accordance with U.S. GAAP.

The Credit Facility provides that the Company will be required at all times to satisfy a Minimum Liquidity Test (as defined in the Credit Agreement) of at least $50.0 million. The Company will also be required to maintain minimum adjusted EBITDA (as defined in the credit agreement) of $100.0 million. The Company must also maintain a Maximum Total Leverage Ratio (as defined in the credit agreement) of 2.25:1.0, which requirement decreases to (i) 2.0:1.0 on December 31, 2016; and (ii) 1.75:1.0 on December 31, 2017. The Company was in compliance with all of these requirements at September 30, 2016. The ratio of total debt to adjusted EBITDA was 0.21:1 as at September 30, 2016, where Total Debt (as defined in the credit agreement) is the sum of all obligations evidenced by notes, bonds, debentures or similar instruments and was $28.2 million. Adjusted EBITDA is calculated as follows:

For the

For the

3 months ended

12 months ended

September 30, 2016

September 30, 2016

(1)

(In thousands of U.S. Dollars)

Net income

$

4,384

$

53,489

Add (subtract):

Loss from equity accounted investments

690

3,263

Provision for income taxes

2,551

17,279

Interest expense, net of interest income

99

358

Depreciation and amortization, including film asset amortization

11,984

45,036

Write-downs, net of recoveries including asset impairments and

receivable provisions

1,654

3,700

Stock and other non-cash compensation

7,882

30,071

EBITDA before non-controlling interests

29,244

153,196

EBITDA attributable to non-controlling interests(2)

(4,738)

(20,006)

EBITDA attributable to common shareholders

$

24,506

$

133,190

Adjusted revenues attributable to common shareholders(3)

$

77,171

$

350,657

Adjusted EBITDA margin

31.8%

38.0%

__________________

(1)

Ratio of funded debt calculated using twelve months ended EBITDA.

(2)

The EBITDA calculation specified for purpose of the minimum EBITDA covenant excludes the reduction in EBITDA from the Company's non-controlling interests.

The Company reported net income of $4.4 million or $0.07 per basic and diluted share for the third quarter of 2016, as compared to net income of $10.5 million or $0.15 per basic share and $0.14 per diluted share for the third quarter of 2015. Net income for the third quarter of 2016 includes a $7.7 million charge or $0.11 per diluted share (2015 — $4.3 million or $0.06 per diluted share) for stock-based compensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $9.9 million or $0.15 per diluted share for the third quarter of 2016, as compared to adjusted net income of $13.9 million or $0.19 per diluted share for the third quarter of 2015. Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation and the related tax impact, was $7.9 million or $0.12 per diluted share for the third quarter of 2016, as compared to adjusted net income attributable to common shareholders of $12.0 million or $0.17 per diluted share for the third quarter of 2015. A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:

Quarter Ended September 30,

2016

2015

Net Income

Diluted EPS

Net Income

Diluted EPS

Reported net income

$

4,384

$

0.07

$

10,514

$

0.14

(1)

Adjustments:

Stock-based compensation

7,742

0.11

4,252

0.06

Tax impact on items listed above

(2,210)

(0.03)

(901)

(0.01)

Adjusted net income

9,916

0.15

13,865

0.19

(1)

Net income attributable to non-controlling interests

(1,859)

(0.03)

(1,904)

(0.02)

Stock-based compensation (net of tax of less than $0.1

million) attributable to non-controlling interests

(128)

-

-

-

Adjusted net income attributable to common shareholders

$

7,929

$

0.12

$

11,961

$

0.17

(1)

Weighted average diluted shares outstanding

67,746

70,860

_____________

(1)

Includes impact of $0.3 million of accretion charges associated with redeemable Class C shares of IMAX China.

The Company reported net income of $27.2 million or $0.40 per basic and diluted share for the nine months ended September 30, 2016, as compared to net income of $38.4 million or $0.54 per basic share and $0.53 per diluted share for the nine months ended September 30, 2015. Net income for the nine months ended September 30, 2016 includes a $22.5 million charge or $0.32 per diluted share (2015 — $14.9 million or $0.21 per diluted share) for stock-based compensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $43.3 million or $0.63 per diluted share for the nine months ended September 30, 2016, as compared to adjusted net income of $50.7 million or $0.70 per diluted share for the nine months ended September 30, 2015. Adjusted net income attributable to common shareholders, which consists of net income attributable to common shareholders excluding the impact of stock-based compensation and the related tax impact, was $35.5 million or $0.52 per diluted share for the nine months ended September 30, 2016, as compared to adjusted net income attributable to common shareholders of $45.7 million or $0.63 per diluted share for the nine months ended September 30, 2015. A reconciliation of net income and net income attributable to common shareholders, the most directly comparable U.S. GAAP measure, to adjusted net income, adjusted net income per diluted share, adjusted net income attributable to common shareholders and adjusted net income attributable to common shareholders per diluted share is presented in the table below:

Nine Months Ended September 30,

2016

2015

Net Income

Diluted EPS

Net Income

Diluted EPS

Reported net income

$

27,244

$

0.40

$

38,379

$

0.53

(1)

Adjustments:

Stock-based compensation

22,485

0.32

14,930

0.21

Tax impact on items listed above

(6,394)

(0.09)

(2,603)

(0.04)

Adjusted net income

43,335

0.63

50,706

0.70

(1)

Net income attributable to non-controlling interests

(7,401)

(0.11)

(5,028)

(0.07)

Stock-based compensation (net of tax of $0.1 million)

attributable to non-controlling interests

(421)

-

-

-

Adjusted net income attributable to common shareholders

$

35,513

$

0.52

$

45,678

$

0.63

(1)

Weighted average diluted shares outstanding

68,721

71,102

_____________

(1)

Includes impact of $0.7 million of accretion charges associated with redeemable Class C shares of IMAX China.

Free Cash Flow:Free cash flow is defined as cash provided by operating activities minus cash used in investing activities (from the consolidated statements of cash flows). Cash provided by operating activities consist of net income, plus depreciation and amortization, plus the change in deferred income taxes, plus other non-cash items, plus changes in working capital, less investment in film assets, plus other changes in operating assets and liabilities. Cash used in investing activities includes capital expenditures, acquisitions and other cash used in investing activities. Management views free cash flow, a non-GAAP measure, as a measure of the Company's after-tax cash flow available to reduce debt, add to cash balances, and fund other financing activities. Free cash flow does not represent residual cash flow available for discretionary expenditures. A reconciliation of cash provided by operating activities to free cash flow is presented in the table below: